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When Sir Winston Churchill resigned from the office of the Prime Minister of Great Britain, in 1955, he was quoted as saying “I will not preside over the dismembering” of what was previously The British Empire. But as the Empire shrank quickly to the size of the United Kingdom, the “Spy-Empire” of MI5 and Mi6, founded in 1909, never receded but expanded world-wide and turned high-tech.

On the eve of its 100th Anniversary, one of the best and most popular British writers, specializing in intelligence, pays a tribute to many generations of British spies and their spy-masters, who have influenced the history of Great Britain and of the world.

His book,“Secret Wars. One Hundred Years of British Intelligence Inside MI5 and MI6” (St.Martin’s Press, March 2009), is a fascinating read for everybody, and for intelligence operatives and young secret service recruits, in particular it should be a must. This book is not a history text or a mere chronicle of events, and it’s not a panegyric either. “The great advantage of being a writer” – Graham Greene once said – “is that you can spy on people. You’re there, listening to every word, but part of you is observing. Everything is useful to a writer, you see – every scrap, even the longest and most boring of luncheon parties.” For a greater part of his 75-year-long life, Gordon Thomas was doing just that: meeting spies and spy-masters, not only British but also American, Israeli, Russian, Chinese, Polish, German and many others and listening to their insider’s stories. The best and undisputable value of his book is the author’s encounters with real flesh and blood intelligence people, including some of them that turned the tide of history.

The research for this book took the author almost 50 years, since the Suez Crisis in 1956, which he had witnessed as a foreign correspondent based in Egypt. From his contacts there he learned about President Naser’s plan to nationalize the Canal and he warned the Foreign Office about that – only to be told that if he missed the truth he better forget about his journalist career. He was right. But it was the British Government to fail in their insane plans to assassinate Naser (described in the book) and then to abort a British-French-Israeli invasion of Egypt, secretly conceived not to inform the Americans. Later on Gordon Thomas covered many other events, which had been planned, provoked or carried out with the participation of secret intelligence services. He was introduced to the world of spying by his late father-in-law and life-time friend, a former British covert agent, Joachim Kraner, to whom he later paid a tribute in his writings.

“Secret Wars” is a story of the British Intelligence over the span of a hundred years, since 1909, when MI5 and MI6 (code-names for the military counter-intelligence and intelligence) were founded to prevent an expected German attack on Great Britain. The over-400 page book is not a systematic, chronologically arranged tale. Each of its 20 chapters is a purposeful mixture of past and present events, sometimes with projections into future. For a reader, this book is a fascinating, perfectly composed thriller, which The New York Times described as “Literally impossible to put down.”

Mark Twain was quoted as saying: “Get your facts first, then you can distort them as you please.” He had writing fiction on his mind but his words could just as well be attributed to the distortion of intelligence by politicians. James Angleton, a famous CIA spy-master and spy-catcher, whom Gordon Thomas had interviewed, summarized this unhealthy relationship between intelligence and politics by these words, quoted in the book: “Secrecy from public scrutiny leads to often uncheckable and different accounts of the same events, which are often contradictory and distorted.” Thomas’ book gives innumerable examples of such misuse of the honest fact-finding by intelligence services, of which a recent one could be a “sexed-up” report about alleged Saddam’s WMDs (weapons of mass destruction) that Prime Minister Blair and President Bush used to justify the 2003 invasion of Iraq.

The Great Game often recalled in “Secret Wars” as the never-ending deception war waged by national intelligence agencies was played over the last hundred years by MI5 and MI6 continues. “The color of truth is gray” (Andre Gide), because truth is evasive and often hidden from the public by purposeful cover-up. Generations of British spies, as well as their controllers and masters, contributed to the security of their country, at times preventing national disasters and saving many thousand of lives during wars. But the British (and also American) intelligence services have been, for decades, deeply penetrated and harmed by Soviet “moles,” recruited at the best universities, such as Cambridge and Oxford. Gordon Thomas writes about treason within the British services and about a complete failure of the counter-intelligence to detect it. The cases of Kim Philby (a high-ranking British counter-intelligence officer and a long-time Soviet spy) and of nuclear scientists, Klaus Fuchs, Alan Nunn May and Bruno Pontecorvo, who passed top atomic weapons secrets of the West to the Soviets, are perhaps the most significant. The author describes these treason cases with passion and talent and warns that “splendid isolation” of some British heads of The Services and their failure to put together and check simple facts, led to a disaster inside MI5 and MI6 and to a long-term lack of confidence between the British and American intelligence.

As the motivation of the Communist spies inside MI5 and MI6 was mainly ideological, the CIA and FBI suffered even bigger losses due to simple “commercial” motivations of their own traitors, like Ames and Hansen. Greed for money was their only reason to betray the services and the country. Aldrich “Rick” Ames destroyed the American spy network in the Soviet Union in the 1980s and caused the deaths of many Russian CIA agents for a reward of some $ 2.7 million from the KGB. Caught, he admitted with sarcastic grin that “The human spy, in terms of the American espionage effort, had never been terribly pertinent.”

Yet the British SIS (MI6) could also score big success with their top spy in the Soviet Russia, Oleg Gordievski, who’s brave exfiltration from USSR by a diplomatic car to Finland in 1985 had proven the efficiency of the British intelligence. A former MI6 covert agent, Richard Tomlinson, told the author, referring to SIS chief Collin McColl who worked in Russia and Poland: “Being in SovBlock meant you lived on the tightrope every moment of every day. Someone who could do that had to be very special.”

With the collapse of the Soviet Block in the early 1990s, the very nature of the Great Game has changed. The exceptionally high value of Gordon Thomas’ book is his factual description and professional assessment of the substantial changes in the intelligence community, caused by new political and military situation of the world at large.

The times of the absolute domination of the two super-powers, the United States and the Soviet Union, have passed forever. For some years, in the 1990s, the U.S. leadership naively believed America could become the only world’s super-power to dictate its policy and to promote the democratic values of the West to the rest of the globe. But soon new threats appeared and the United States (and also Britain as their main ally) realized that the world was too complicated to rule and that the peaceful victory in the Cold War was but a temporary success.

“Secret Wars” is a perfect book to prove that. Once again, Gordon Thomas demonstrated his unique talent in grasping of new trends in the Great Game and in the intelligence community. For no one knows how long a time, the world will be a very dangerous place, with many global and regional centers of power, and with growing problems. Terrorism, which was seen by MI5 and MI6 as mainly a local (IRA) problem or as an offspring of the Communist diversion, had developed into a global monster (al-Qaeda) and its main ideological motivation had become radical Islam, or Islamism.

The negligence of this phenomenon by American and British intelligence agencies led to their ineptitude to prevent 9/11 in America in 2001, and the London bombings of 2005. In spite of many efforts to disrupt al-Qaeda, to defeat the Taliban in Afghanistan and Pakistan, to capture or kill Osama bin Laden, the Islamist radical network is still developing and posing a deadly threat to the West and to Asia and Africa. Two extremely dangerous developments added to the threat of international terrorism: bio-terrorism and nuclear-terrorism. Both have been described in “Secret Wars” with utmost accuracy and a powerful vision. The arsenals of bio-weapons, deadly viruses and bacteria, originally developed in the Soviet Union and also in the West, penetrated to rogue countries, from where they might be distributed to non-state terrorist organizations. On the other hand, nuclear materials and even weapons could be bought up on black markets by envoys of al-Qaeda to be used against the “Infidels” and were also offered by a Pakistani Dr. A.Q.Khan “commercial” network. Dr. Khan described himself as “world’s nuclear bomb peacemaker.” Nuclear scare embraced America and Britain following the 9/11 terrorist attacks on U.S. soil (2001) and the suicide bombings in London (2005). The author pays much attention to these tragic events and to the inability of the powerful secret services to predict and prevent them.

“There’s a new world out there. Adjust or die,” Gordon Thomas quotes former chief of the CIA, Bob Gates. But fortunately for the Western intelligence, people from the “other side” decide to “walk-in” and offer their help. One of these people was (the late) Vladimir Pasechnik from Russia, who contacted the British service to report about his KGB enterprise Biopreparat developing mass-killing toxins, viruses and bacteria. Asked why he did that, he replied: “I want the West to know. There must be a way to stop this madness.” Dr. David Kelly (also late by now), a top British microbiology and bio-weapons expert, told the author after his interrogation of Pasechnik: “The really terrifying thing was that I knew Vladimir was telling the truth.” Thomas dedicated more than one chapter of his book to the tragic plight of Dr. Kelly, whose more than 30 trips to Iraq in search of bio-weapons ended by a conclusion that there weren’t any. In spite of that, a “sexed-up” intelligence report to the British PM had been used as an excuse for the 2003 invasion of Iraq. In the same year, Dr. Kelly, disgraced and left alone by MI6 and MI5, died, or rather was murdered in strange circumstances. Before his death, a number of bacteriologists from several countries, including Britain, Russia and the U.S.A., were killed by unknown perpetrators, allegedly for refusing to share their knowledge with North Korean, Iranian and probably Chinese intelligence.

New threats and at the same challenges to the intelligence services of Britain and the West, described in detail by Gordon Thomas in “Secret Wars”, could be summed up as: international terrorism, rogue regimes (North Korea, Iran in particular) and a technological diversion, including professional cyber-attacks, led and developed by some states (Russia and China) and even by members of the Western alliance (Israel). It started in early 1980s with the theft of a powerful tracking software system, PROMIS, invented by a former NSA expert William L. Hamilton and produced by his small Washington D.C.-based company Inslaw Inc. Of PROMIS a former Mossad operative, Ari Ben Menashe, quoted by the author, said: “PROMIS changed the thinking of the entire intelligence world.” And Charles Foster Bass added: “Like any good spy novel, the Cox Report alleges that Chinese spies penetrated four U.S. weapons research labs and stole important information on seven nuclear warhead designs.” Only an American citizen and Israel’s spy, Jonathan Pollard (still in American top security prison) could do more. Pollard transmitted over 360 cubic feet of U.S. secret documents to Tel Aviv and some were also sold to Russia. A former CIA chief, the late William Casey complained about that to the author: “It was a double blow. It had cost us every worthwhile secret we had. And it had been stolen by a country supposed to be our ally.”

But God perhaps rewarded the West and MI6 with a voluntary service of a high-ranking Iranian intelligence general, Ali Reza Asgari from VEVAK, code-named “Falcon”, who informed the British intelligence about the nuclear program of Iran and was successfully exfiltrated via Turkey and Bulgaria to the U.K. His motivations were personal and perhaps also monetary, but his services were of top importance to the West.

The spying Great Game goes on undisturbed by moments of failure and agony. The British services, closely cooperating with the American ones, own a big share of the most sophisticated spying technology, including satellite surveillance systems, ECHELON eavesdropping network and the fastest computers in the world. A former CIA chief, William Colby, quoted by the author on the NSA computers, said: “makes lightening look slow. One time there was a program that could translate seven languages at five hundred words per minute. Next time I checked, a month later, it had doubled its capacity and halved its translation time.” The various spying technologies like ELINT, SIGINT, IMINT and missile trajectory tracking systems are well described in the book. But all these marvelous inventions are still short of tracking Osama bin Laden in the mountains of Pakistan or Afghanistan and to follow, like PROMIS, the passage of money to terrorists by an ancient Muslim “hawala” human contact network, based on full confidence of the sender, the receiver and the “hawaladar”, the money handler.

As Mark Twain once remarked, “It is wiser to find out than to suppose.” This phrase might be the best description of what the intelligence services always did and do. Their mission is to discover and transmit secret information to help the governments in their decision making. Michael Smith, a defense analyst, quoted by Gordon Thomas in his Personal Notes closing the book, had captured the inner sense of proper spying: “Intelligence will need to be untainted and unlike the notorious (sexed-up) dossier on Iraq, both genuine and accurate.”

“For decades to come the spy world will continue to be the collective couch where the subconscious of each nation is confessed” (John LeCarre).

Gordon Thomas is well placed on this “couch” to observe what the services do and how Britain and the world benefit or lose from their work. The Great Game will never end and “Secret Wars” is a great book to read and learn of the 100 years of MI5 and MI6 and much more.

David Dastych is a former Polish intelligence operative, who served in the 1960s-1980s and was a double agent for the CIA from 1973 until his arrest in 1987 by then-communist Poland on charges of espionage. Dastych was released from prison in 1990 after the fall of communism and in the years since has voluntarily helped Western intelligence services with tracking the nuclear proliferation black market in Eastern Europe and the Middle East. After a serious injury in 1994 confined him to a wheelchair, Dastych began a second career as an investigative journalist covering terrorism, intelligence and organized crime.

David Dastych is a former Polish intelligence operative, who served in the 1960s-1980s and was a double agent for the CIA from 1973 until his arrest in 1987 by then-communist Poland on charges of espionage. Dastych was released from prison in 1990 after the fall of communism and in the years since has voluntarily helped Western intelligence services with tracking the nuclear proliferation black market in Eastern Europe and the Middle East. After a serious injury in 1994 confined him to a wheelchair, Dastych began a second career as an investigative journalist covering terrorism, intelligence and organized crime. David can be reached at: davids@aster.pl

TEHRAN (FNA)- Iranian Energy Minister Parviz Fattah said Iran would "finish and operate" its first nuclear power plant in the southern port city of Bushehr by the end of this year.

"Iran will finish and operate the Bushehr nuclear plant by the end of this year," Fattah said at the World Water Forum in Istanbul on Friday.

Fattah said the Bushehr nuclear plant will begin producing at about half capacity (500 megawatts) by late August.

He said it should reach its full 1,000-megawatt capacity by the end of March, 2010.

Iran's Deputy Foreign Minister Hossein Sheikhol-Eslam also said early this month that Bushehr would be fully operational in September.

Asked if US President Barack Obama's overture to Tehran would affect the Iranian nuclear program, Fattah said, "Iran has chosen a direction for achieving peaceful nuclear energy. We have mainly reached this aim."

"Exactly 20 days from now we will have another celebration for celebrating the achievements we have gained for peaceful nuclear energy. You will hear about the news," he said, speaking through an interpreter at a press conference

MOSCOW. (RIA Novosti political commentator Andrei Fedyashin) - France's National Assembly rejected a vote of no confidence against the government, a motion that was proposed by Prime Minister Francois Fillon.

Now, Paris has officially returned to NATO's integrated military command after more than 40 years of absence. This NATO's westward expansion was largely a formality. In real life, Paris has long taken part in all of NATO's main operations and has been fourth in its contribution to NATO's foreign military operations in Afghanistan, Kosovo, and Iraq in the last ten years.

Nicolas Sarkozy spoke more than once about the need to return to NATO's central post because it is not befitting for the EU's main member not to take part in decision-making in a bloc that unites the majority of European countries.

Needless to say, France is not returning to the NATO of Charles de Gaulle times. By withdrawing from NATO's military command, the general protested not against NATO per se, but against U.S. domination in it. He did not like Washington at all. Now, after George W. Bush's departure, in conditions of global turmoil, America's loss of prestige and the EU's general irritation, NATO will not be quite the same. European politicians have long been talking about the need for fundamental structural reforms in NATO, and reduction of its bloated and ossified bureaucracy.

The French left-wing forces often blame Sarkozy for his excessive fondness of America, although up to this day this love has only been expressed in his short vacations in America. It is not likely to reveal itself within NATO. On the contrary, Paris is returning to NATO with the full resolve to change the organization from within.

Debates in the National Assembly made it clear that France's presence in NATO will not be easy and smooth. During the debates, French Defense Minister Herve Morin said that it is impossible to decide on the NATO entry of Georgia and Ukraine without consultations with Russia. He said that France believes that NATO should focus on its main task of ensuring collective security rather than turning itself into a global bloc.

There is one more fact showing that the United States is dramatically changing its attitude towards NATO's expansion. By coincidence, on the day of the debates in France, U.S. President Barack Obama received a report by the bipartisan commission of experts on U.S. policy toward Russia headed by former Senator and presidential nominee Gary Hart (Dem.) and former Senator Chuck Hagel (Rep.). In the report, they urge the West to find alternative ways of cooperating with Georgia and Ukraine other than NATO's membership. They emphasize that these countries are not ready to enter NATO, and that the United States, in terms of its national security interests, does not require their membership in the bloc.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

The technology of management—the tools and techniques we use to mobilize human effort—is likely to change dramatically over the next few years. Modern management was invented a century ago to solve one overriding problem: how to organize work at scale with ever-increasing productivity. This problem is still important, but organizations now confront a new set of challenges, which cannot be solved with Industrial Age management practices and structures.

Today, the overriding problem for every organization is how to change, deeply and continually, and at an accelerating pace. We live in a world where change is “shaken, not stirred.” Yet in most organizations, practices and structures reflexively favor the status quo over change and renewal. We see entire industries—for example, pharmaceuticals, music, advertising, and publishing—where the incumbents are struggling to invent their way out of slowly dying business models.

The barriers that once protected large companies from the winds of creative destruction are crumbling. The result: hypercompetition and relentless pressure on margins. In this environment, the returns on “incrementalism” are going down while the premium on innovation is rapidly increasing. In most organizations, innovation is still mostly an afterthought. It’s a project, an initiative, or a function, but it’s not an activity that involves everyone, every day.

The need to adapt and innovate will require organizations to better use their human capital. For organizations to succeed in today’s “creative economy,” they need employees who bring more than their diligence and expertise to work: employees must also bring their imagination and passion. Again, there’s much work to be done here. Global surveys show that fewer than 20 percent of employees—and in some countries as few as 2 or 3 percent—are highly engaged in their work. Most people are just not emotionally or intellectually committed to what they do on the job. Perhaps companies could afford that when most employees were just expected to follow the rules, but today this lack of engagement is competitively untenable.

Unless organizations in the developed world want to join the race to the bottom, they must find a management model that encourages people to bring the very best of themselves to work everyday. For all these reasons tomorrow’s business leaders must create companies that are more adaptable, innovative, and inspiring than the bureaucratic, top-down organizations that predominate today.

When you look back at the history of management, you find that it was the management pioneers that became the 20th century’s industrial giants: GE brought management discipline to science and helped to create the world’s first R&D labs. P&G developed methods for creating value around brands—assets that didn’t even appear on the balance sheet. In this new century, I’m confident that bold management innovators will be the winners.

In addition, I believe there’s a good chance that the technology of management will change as radically in the next few decades as it did in the early part of the last century. Three things will drive this new management revolution. First, as I described earlier, companies today face a set of new and inescapable challenges that lie outside the performance envelope of management as usual. The second driving force is the Internet, which has spawned a vast array of new tools for managing collaboration. In the past, nothing could be done at scale without a lot of bureaucratic structures. Now thousands of people can collaborate around the world online with little in the way of formal hierarchy or management structures. Suppose, for a moment, that ten years ago someone had surveyed the top 100 executives in each of the Fortune 500 companies—that’s 50,000 business leaders—and asked them if they could imagine a time when a disparate army of volunteers from across the world, with no formal control processes, no budgets, and no real funding, could create one of the most complex of all products: a computer operating system. I doubt that one executive out of a thousand would have said, “Sure, this will happen.” Yet the Linux operating system was developed in precisely this way. So we should be asking ourselves, what are the potential management breakthroughs that we can scarcely imagine?

These new Web-based tools will allow hierarchies to form around natural leaders rather than beneath the individuals who have been given formal, hierarchical appointments. They will democratize the workplace and give everyone the chance to help create strategy and offer advice on critical issues. This won’t happen overnight, but organizations will eventually figure out how to use these new tools, just as those early management pioneers learned how to use the telegraph and then the telephone to better manage large-scale organizations.

The values and attitudes of the Millennials now entering the work force make up the third challenge that will compel organizations to retool their legacy management models. If you spent your adolescence creating, collaborating, and learning on the Web, you’ve developed some sensibilities that will be very hard to change once you enter the work force. One of these is the belief that all ideas should compete on a level playing field. The twentysomethings who take this as a point of faith won’t want to work in organizations where a senior executive’s point of view gets an extra measure of credibility simply because he or she sits higher up in the hierarchy.

This new generation also believes that all information should be accessible. The ethos is to share information freely, not to dole it out on a need-to-know basis, as management often did in the past.

What’s more, this new generation believes that people should be measured on the basis of their contributions, not their credentials. When you post something on YouTube or write a blog, nobody asks, “Did you go to film school?” “Do you have a journalism degree?” People ask, “Was it funny?” “Was it incisive?” So any company that hopes to hire the best and the brightest will have to confront the need to dramatically change how they manage and how they organize, because the value system found in most organizations today is antithetical to the value systems that drive collaboration on the Web.

These three factors—inescapable challenges that defy conventional management wisdom, new social technologies that allow human beings to accomplish great things without the weight of bureaucracy, and a new generation of employees who come to work preloaded with antibureaucracy values—are going to force a fundamental rethink of how we lead, manage, and organize. Already you can see harbingers of the revolution to come: if your company isn’t on the reinvention curve, it’s going to be at a serious disadvantage. Just as organizations spent huge amounts of energy over the past decade reinventing their operating models—their logistics, supply chains, and customer support—they must now commit themselves to reengineering their management models.

Historically, the diffusion rate for new management ideas has been pretty slow. The principles of Total Quality Management, for instance, were first applied in a few Japanese companies after World War II, but it wasn’t until the 1980s that they finally went mainstream. I’d like to believe that we can change a bit faster this time. But there will be resistance. Executives have worked hard for the privileges they enjoy in the current system and won’t be eager to abandon them.

The new management pioneers may come from Brazil, China, India, and Mexico—and from other parts of the world where the Western management model is not yet thoroughly entrenched. Young companies are often filled with equally young employees who have little to unlearn. If I had to make a bet, I’d wager that tomorrow’s most progressive management innovators won’t come from the Fortune 500.

In the latest edition Peter Day talks to Tim Brown of Ideo and Roger Martin, Dean of the Rotman School of Management, University of Toronto on a new role for designers - redesigning what companies do.Thinking about Thinking

For a long time I was frightened of thinking. It was (I assumed) an analytic practice. I had a brain that was wretched at analysis. But quite good at synthesis and association.Actually, that wasn’t all bad. As you get older (see pic.) analysis tends to lose its vigour; it’s a young persons’ game. But synthesis goes on, and gets better results, perhaps as you get more experience to synthesise as you get older.I would like to have been taught that a long time ago. But they didn’t seem to teach thinking in those days. However it is now becoming a discipline in its own right, and this week’s programme hears from two people keenly interested in thinking about business.One of them is the dean of a business school, and that is immediately interesting because I don’t know that business schools have been interested in thinking until rather recently.Management education gives its expensive students the tools to do the job : analytic techniques, strategic skill sets, case studies about historic problems to be solved afresh, and of course a prodigious network of fellow students who will go out and conquer their own worlds.Fuzzy But to all that stuff, Roger Martin is trying to add the art of thinking to the curriculum at the Rotman School of Management at the University of Toronto in Canada.He calls it Integrative Thinking with a trademark sign attached. Instead of choosing between one or the other opposing solution, Roger Martin urges business leaders to build a superior new model, building on the original proposals but superior to them. It may sound fuzzy the way I tell it, but it’s systematically worked out to take the tension out of the opposing models which is the way conventional thinkers look at the business world.When he visited the school seven years ago the late Professor Peter Drucker said : ““What the Rotman School is doing may be the most important thing happening in management education today.” And Peter Drucker was the most thoughtful management guru, ever.Weighty Another thing they do well at Rotman is produce a thrice a year magazine which tackles real ideas with a verve and style that I have not encountered anywhere else, benefiting from the influence of distinctive Canadian designers.Roger Martin regards design as a central part of thinking about business..not just as decoration or an add on, but as a way of running business as a whole.The other interviewee in this programme is the designer Tim Brown, the British born Royal College of Art graduate who is now president and chief executive of the international design group Ideo, based in Palo Alto in Silicon Valley (that place again!).In a similar way to Roger Martin at Rotman, he is a proponent of the idea that design has a great deal to teach managers. Last year he wrote a striking article about this in the weighty Harvard Business Review called Design Thinking.Simple For many years Ideo has gone far deeper into business than merely designing products. A walk round any of the Idea studios is exhilarating.Ideo’s designers often start a project by creating a pretty detailed profile of the customer who may use the final product : a fully fleshed out biography that will enable them to envision how real people will respond to thing they are creating.But design thinking goes deeper than that. Tim Brown (and Roger Martin) argue that thinking like designers ought to animate many aspects of management, hitherto obsessed with process and marketing and strategy to the often exclusion of the people who will buy the product or service the company is trying to maker.If business people listen to them, it might create nothing less than a revolution. Managers love to repeat the mantra “Keep it simple stupid.” But life isn’t simple, and designers may be more aware of that than companies are.That’s just a thought ... but quite a big one. The kind they really ought to be teaching at business school.

Contributors:

Tim Brown, CEO, Ideo/

Roger Martin, Dean of the Rotman School of Management, University of Toronto

History is made after threats, genocides and the oppressions by State`s various actors on one hand. But on the other hand, she writes her chapters & shapes her profile in accordance with the prevailing socio-economic atmosphere, by her geopolitical situation, pushing the masses to the walls, creating the sense of slavery. The yearnings of the oppressed nations for the emanicipation is formed by the mutual agreements of the nations for their bilateral existance and above of all, the firm determination to throw the yoke of slavery writes excellent events in the books called history.

Balochistan has never accepted the dominance of Pakistan since Marach, 1948 and Afghanistan has never accepted the illegal occupation of Pakhtunkhawa and Balochistan by Pakistan.To maintain the illegal occupation over Balochistan and Pakhtunkhawa, Pakistan has left no stone unturened to destabilize Afghanistan. Millions of human beings have been slaughtered after the killing of Sardar Daud Khan, the first President of Afghanistan, due to the Pakistani ISI inspired military coup. Remember that Sardar Daud Khan was a staunch supporter of Pashtuns & Balochs. He was removed by Panjabis to keep Balochs and Pashtuns in the schakels of slavery. But Panjabis could not and shall never be victorous in Afghanistan to make Afghans their slaves any more. On the contrary, in the foreseeble future, Afghanistan shall be in strong position to deliver the fruits of freedom to his neighbouring brothers - Pashtuns & Balochs. Do weep or laugh loudly, you have to free Balochistan.

To sustain the illegal occupation of Baloch and Pakhtun lands, the Pakistani establishment threatens her neighbours with WMD, installation of Wahabi Talibanisation in Pakistan, promulgation of Sharia Laws, with their "green garden" vision to establish Khilafate Raj in the whole world.

The Pakistani proxy war, either in Afghanistan or in India is a totall failure. Her allies, middle-east countries, Iran, North Korea and China can finance them and provide different weapons but they shall never be able to stop the melting-down of the forced-married State called Pakistan.

In the end, Khane Qalat, Mir Daud Khan - based in London, - shall give permission to NATO/ISAF forces to use Baloch land, coast and air space for the logistic supply to Baloch`s friends in Afghanistan. Do laugh loudly or cry deeply, but you have to free Balochistan because Balochs whole-heartly aspire that Balochistan should get her status before 27th March, 1948. Khane Qalat as the head of the State, assisted by two Baloch Parliaments..The lower house and the upper house. It`s not 1948.

Be happy & laugh loudly for the freedom of Balochistan because it shall bring peace and prosperity not only in South Asia but in the whole world. A student of political science is well aware that Balochistan has been the pivotal political policy of Pakistan. The thirst of adding more land in Pakistan and to exploit or steal the rich mineral resources of Balochistan are the main reasons for many Military Coups, internal unrest and denial of human rights to the citizens of Pakistan for the last 61 years.To keep the golden bird - Balochistan - in the cage, Pakistani ISI has waged several wars during the period of 61 years on different fronts. It`s the same case now, too. Pakistani Military and ISI is spreading her "War of terror" not only against Balochs but also she is very busy on her eastern and western borders, leaving aside their adventures in remote lands, over the seven seas !!! The abundent incomes from the Baloch mineral resources has helped to enlarge the Pakistani Army and covered the costs to build WMD. Baloch mineral wealth has increased the bank balances of the elite class of Pakistan.The common citizens of Pakistan shall never cry for a free Balochistan as they do not benefit from the looting of natural resources of Balochistan. The neighbouring countries shall, surely, rejoice on the freedom of Balochistan because the Pakistani Army shall never be able to carry-out their pocket Jehadi activities abroad.

Pakistan has ploughed and sowed the idea of "depth stratagic policy in both India & Afghanistan." Now she is reaping the same inputs. Pakistani establishment is not impunate to terrorize and kill the citizens of her neighbours. One can predict, that in the foreseeble period, the counter-insurgencey and surgical strikes all over Pakistan may be the "common dadily news" in response to their illegal interference in the affairs of their neighbours.

While, the continued insurgencies shall, undoubtedly, cripple the economy of Pakistan with the result of demoralisaring & decreasing the number of her Armed Forces and various Jehadi Organisations. The self created crisis by ISI in Pakistan, with their motives to pave the way for Talibanisation in Pakistan, shall never be accepted by Balochistan. The civilised world alongwith the United Nations shall come forward to help Balochistan & Pakhtunkhawa, as an ally, to fight against Talibans, fundamental Islamic forces and Chinese menace. The chances for a secular, a democratic and free Balochistan are as bright as a light of a day!!! Please be happy and don`t worry, if Balochs get their freedom.

Thanks to the present greedy elite class of Pakistan, the Pakistani common citizen`s economic burden shall be unbearable and Balochistan shall be denied and bluffed to get her rights, as usual. The mutiny of the ethnic groups of Pakistan shall never be finished. Social, secterian and the ISI created crisis shall add the misery to the stabilisation of Pakistan.

Again, The civilised world shall be smart enough by refusing to "dig their own graves." as they shall be enlightened that the aid to Pakistan, money & weapons - finally is destined to Talibans (read: Pakistani trained gorilla soldiers ) who kill NATO soldiers in Afghanistan. They are well aware that Pakistan can`t solve their economic problems, even if they get fifty billion dollars every month. In the long run, the clash between the Pakistani Army and the people of Pakistan shall result into a new geo/socio/economic contract which means, in the case of Balochistan, an Independent State.....be happy don`t worry !!!

Again, not only the neighbours of Pakistan are in trouble but the greedy class and their barbarous, disgraced Army and ISI has made an hell to the citizens of whole Pakistan, including her mainland...Panjab. Why they are experiencing trouble, difficulties, inflation, Military dictator-ships, wars, countless self created crisis by ISI, sectarian crisis, ethnic battles? Is it not the result of forcebly hold Balochistan in Pakistan? Why a common Pakistani is not welcommed in Western world to seek employment and they are suspected as Talibans/Quides or Qazis? The answer is ....Pakistani Army is attempting, unsuccessfuly, to keep their occupation over Balochistan and they are, like the insae beasts are "fighting the war of terror" against the whole world, specially against Afghanistan and India. Be happy & don`t worry, if Balochistan emerges as a free State.

The beneficial side-effects of the freedom of Balochistanshall be the freedom of the people of Panjab and rest of Pakistan i.e. to take the breath of freedom in democracy, freedom to speech, freedom for movement, economic freedom for an ordinary citizen of Pakistan and freedom to settle in the whole world. They can purchase the mineral resources of Balochistan on very cheap prices and Balochistan shall be their nice, truthworthy and friendly neighbour.

We do firmly beleive that an Independent Balochistan shall feed more Panjabis. A peaceful and free Balochistan shall need more labours, technicians and men of white collor.This gap can be filled-up not only bt Panjabi Balochs but also from central and eastern part of Panjab. On the other hand, the whole world, including India and Afghanistan, shall create golden opportunies to boost the economic opportunities for a peaceful Panjab/Pakistan. This can only happen if you don`t cry but be happy for..... an Independent, sovereign and free Balochistan which - in foreseeble future- shall help Panjab to not become a land-locked country. The chance are crystal clear that the Free Balochistan shall make a Union with Panjab, as we see, nowadays ..... in European Union.

The need for a regional counter-terrorism strategy to be spear-headed by India and the US for eradicating all terrorist sanctuaries in Pakistani territory has been one of the themes of my writings and lectures in the last two years. Extracts from two of the articles written by me on this subject on October 11, 2008, and January 1, 2009, are annexed.

2. It has been my belief that unless and until the US takes the initiative for such a strategy focused on eradicating all terrorist sanctuaries in Pakistani territory India will continue to bleed at the hands of jihadi terrorists spawned in Pakistan and the US will meet the same fate in Afghanistan as the erstwhile USSR did in the 1980s.

3. President Barack Obama’s strategy for the Af-Pak region is still unfolding in bits and pieces. A surge of 16,000 troops to start with and intensified Predator strikes on terrorist hide-outs and training camps in Pakistani territory are two components of this strategy, which are already under implementation. His administration has also been expanding the geographic and target spread of the Predator strikes. From North and South Waziristan and the Bajaur Agency in the Federally-Administered Tribal Areas (FATA), the geographic area of the strikes has been extended to the Kurram Agency in the FATA. The Bannu area in the North-West Frontier Province (NWFP), which was already targeted once by the Bush Administration, has been receiving more attention from the advisers of Obama.

4. The targets are also expanding. The initial targeting under the Bush Administration was mainly against the hide-outs and training camps of Al Qaeda and its associates such as the Afghan Taliban and the Islamic Movement of Uzbekistan (IMU) and the Islamic Jihad Union, which is also an Uzbeck group with many Europeans in it. Under Obama, the targets have been expanded to cover the hide-outs and training camps of the Tehrik-e-Taliban Pakistan (TTP) in all these areas and of Gulbuddin Heckmatyar’s Hizbe-Islami in the Kurram Agency.

5. A report carried by “the New York Times” and reproduced by the “Times of India” of March 19, 2009, indicates that the Obama Administration is also examining the advisability of hitting at the hide-outs and training camps of the Afghan Taliban in Quetta and some other areas of Balochistan adjoining the border with Afghanistan. Mulla Mohammad Omar, the Amir of the Neo Taliban, and his advisers are operating from sanctuaries in these areas.

6. In order to weaken the movement for Baloch independence , the late Gen. Zia-ul-Haq had got settled a large number of Afghan Pashtun refugees in these areas and given them Pakistani citizenship. It is in the midst of these pockets of citizens or residents of Afghan origin that the command and control of the Neo Taliban is located. Unless and until this command and control is targeted and eliminated, the US and other NATO troops will not be able to win the war against terrorism in the Af-Pak region.

7. Predator strikes on the sanctuaries of the Neo Taliban in the areas of Balochistan adjoining the Afghan border will be more difficult and tricky than the strikes now being carried out in the FATA. The targeted Balochistan areas may not be as sparsely populated as the targeted FATA areas. Unless there is precise intelligence, the dangers of civilian killings will be more. Human intelligence collection in the FATA area has already improved, indicating new capabilities now available to the Central Intelligence Agency (CIA) in this region. US intelligence officials must be confident of similar precise intelligence in respect of Balochistan too. Otherwise, recommendations would not have been made to Obama to expand the attacks to cover sanctuaries in Balochistan.

8. It is important that Obama gives his clearance to this recommendation as quickly as possible before the Neo Taliban launches its summer offensive in Afghanistan from its sanctuaries in the Balochistan area.

9. The policy already being followed by Obama and the change now recommended cover only attacks on the sanctuaries of Al Qaeda and its associates, the Neo Taliban, the TTP and the Hizb-e-Islami. They do not cover the group of five organizations----the Harkat-ul-Mujahideen (HUM), the Lashkar-e-Toiba (LET), the Harkat-ul-Jihad-al-Islami (HUJI), the Jaish-e-Mohammad (JEM) and the Lashkar-e-Jhangvi (LEJ)---- which are commonly referred to in Pakistan as the Punjabi Taliban.

10. The JEM has been helping the TTP in the Swat Valley of the NWFP. The LET has been helping the Neo Taliban and the Hizb-e-Islami in the Kabul area. It was involved in the explosion outside the Indian Embassy in Kabul in the first week of July last year. The HUM, the HUJI and the LEJ have been active in the tribal belt since the 1990s.

11. These organizations, except the LEJ, have been behind most acts of jihadi terrorism in the Indian territory. Unless the new US counter-terrorism strategy covers the terrorist infrastructure of the Punjabi Taliban too, the results will not be satisfactory.

12. It is here that the question of Indo-US operational co-operation comes in. The counter-terrorism co-operation between the intelligence agencies of India and the US has till now been confined to intelligence-sharing, mutual legal assistance in investigation of terrorist incidents and training for capacity building. Joint operations are practically nil.

13. The time has come for considering joint operations in the form of some of the Predators operating from bases in Indian territory and joint covert actions against the Punjabi Taliban. Such joint operations will be in the mutual interests of the two countries.

ANNEXUREExtract from my article dated October 11, 2008 and titled “Seven Years of OP Enduring Freedom: No Light Yet” at http://www.southasiaanalysis.org/papers29/paper2877.html

The US and other NATO forces may want a political face-saving because they are not doing well in the fighting, but why should the Taliban Commanders want one when they think they are winning? The same is the situation on the Pakistan side of the border. The TTP thinks it is doing well against the Pakistani security forces. Why should it agree to a compromise without achieving its objective?

Gen. David Petraeus, who was till recently the Commander of the US forces in Iraq, is shortly taking over as the Commander of the US Central Command (has since taken over). In that capacity, he will be responsible for the strategy in the Afghanistan-Pakistan region. In Iraq, he successfully drove a wedge between the secular Iraqi resistance fighters and the Wahabised Arab terrorists of Al Qaeda. There is a talk that he might try a similar approach in the Afghanistan-Pakistan region by driving a wedge between the Taliban on both sides of the border and the Al Qaeda remnants. He succeeded in Iraq because the former Baathists of Saddam Hussein's Army, who constituted the resistance fighters, were secular and did not like the Wahabised Al Qaeda. But, in the Afghanistan-Pakistan region, Wahabism provides the binding ties which strongly unite the Talibans with Al Qaeda. They all feel that the future of Islam is going to be decided in the fight against the US-led NATO forces. They have two common objectives--- the defeat and withdrawal of the NATO forces and the proclamation of an Islamic sharia-based rule in the entire region. So long as these objectives unite them, the Talibans are unlikely to agree to separate peace with the NATO forces. Media reports of a split between the Afghan Taliban and Al Qaeda have not been substantiated.

Unless and until the US is able to hunt down and kill at least bin Laden, Zawahiri and Mulla Omar, there is unlikely to be a change in the ground situation. Instead of nursing illusions of engineering a split between Al Qaeda and the Taliban and negotiating a separate peace with the Taliban, the US should focus on eliminating the Al Qaeda leadership. That was the main objective of Op Enduring Freedom and that should continue to be its main objective.

The success of the new policy will depend upon the neutralisation of the sanctuaries in Pakistani territory which keep the Taliban and Al Qaeda fighting against the US. The neutralisation of the sanctuaries of the Taliban is necessary for the success of the US-led forces and the ANA (Afghan National Army) in Afghanistan. Without the neutralisation of the Al Qaeda sanctuaries in Pakistani territory, the US cannot be free of fears of another 9/11 in the US homeland. Military and intelligence officers of the US realise that the US objectives vis-a-vis Al Qaeda and the Taliban cannot be met unless these sanctuaries are wiped out and the surviving leadership of Al Qaeda is neutralised. They also realise that missile and Predator strikes alone (over 30 during 2008 as compared to 10 during the previous two years) cannot achieve their objective unless combined with clandestine strikes by land-based stealth forces. They did attempt one such strike in September in South Waziristan. It was not successful and the furore in Pakistan over it led to their abandoning any more land-based strikes in Pakistani territory.

The US finds itself in the same position as the USSR found itself in Afghanistan before it decided to quit in 1988. The Soviet troops avoided land-based action against the sanctuaries of the Afghan Mujahideen in Pakistani territory. They confined their retaliatory strikes to Scud missiles fired at the suspected hide-outs of the Mujahideen in Pakistani territory. The civilian deaths caused by the Scuds added to the anger among the Afghan refugees and strengthened their determination to step up their attacks on the Soviet troops in Afghan territory and on Soviet convoys taking logistics supplies to the far-flung Soviet posts. The Mujahideen's success in disrupting the logistics supplies was one of the factors, which contributed to the Soviet decision to quit.

The Afghan and Pakistani Taliban, advised by retired officers of the Inter-Services Intelligence (ISI) such as Lt. Gen. Hamid Gul, are following against the US-led forces the same strategy which the Mujahideen had followed against the Soviet troops-----keeping them bleeding and trying to starve them of essential supplies. In addition to keeping up a high level of suicide and other terrorism in Afghan territory to disrupt road movements of troops and supplies and weaken the control of the ANA in towns, they have stepped up their attacks on road movement of supplies for the NATO forces from Karachi. The US is trying to work out alternate routes through Russia, Georgia and the Central Asian Republics (CARs). It remains to be seen how satisfactory the proposed new supply routes will be.

When Obama's advisers talk of a regional strategy, they mean being responsive to Pakistan's perceived unhappiness and concerns. If they do it, they can exercise more pressure on the Pakistan Army to deal with the sanctuaries and if and when Pakistan does it, it will benefit not only the US, but also India. So their argument goes. This is pure wishful thinking and betrays a failure to comprehend the Pakistani mind-set. Pakistan looks upon the various terrorist groups operating from its territory ----whether against India or Afghanistan or the US---- as strategic assets to limit the power of India and its influence in Afghanistan and the CARs. It is not going to voluntarily give up these perceived assets, unless forced to do so.

The inaction or inability or both of successive Pakistan Governments has enabled Al Qaeda, the Afghan Taliban, the Pakistani Taliban, the anti-India terrorist organisations, the Islamic Movement of Uzbekistan (IMU), the Islamic Jihad Group ( (IJG) and radicalised members of the Pakistani diaspora in Europe and North America acquire a strategic depth in the tribal belt of Pakistan from where they can operate wherever they want all over the world----whether against India or Afghanistan or the West or Russia or even against Pakistan if it co-operates too closely with the US.

What the Obama administration would need is a regional strategy to eliminate the terrorirst sanctuaries in Pakistani territory and to deprive the jihadi terrorists of the world of the strategic depth which they presently enjoy in Pakistani territory. This is a strategy on which the US and India can closely collaborate as and when Obama and his advisers come out of their present mode of wishful thinking.

(Venezuelanalysis.com) -- Venezuelan Foreign Relations Minister Nicolás Maduro and Colombian Foreign Relations Minister Jaime Bermúdez met in Caracas Wednesday to discuss commercial relations and anti-drug policy, demonstrating the first efforts at reconciliation between the two countries since a heated exchange in early March over Colombia's justification of cross-border raids on guerrilla rebels.

"Venezuela and Colombia are two governments with the willingness and capacity to approach one another, broadly discuss and concretize their ideas to move forward on projects that benefit both countries in the midst of uncertainty in the world economy," said Maduro during a press conference alongside Bermúdez.

"The world can observe a plural Latin America agreeing upon and advancing on its own path," Maduro added.

Regarding energy policy, the two ministers discussed their policies on biofuels, electricity, and the environmental impact of energy production and consumption, and moved forward on plans to build an oil pipeline from Venezuela's Orinoco Oil Belt to Colombia.

They also exchanged ideas about how to better organize the gasoline trade at the border, where the smuggling of Venezuela's heavily subsidized gasoline thrives.

Maduro and Bermúdez also spoke about the automobile industry, including the potential expansion of import and export quotas between the two nations and a technology sharing agreement to promote the conversion of cars to dual gasoline-natural gas engines.

A joint investment fund of $200 million and agricultural stimulus were also on the agenda Wednesday, but the ministers said they plan to consult with their respective presidents, Álvaro Uribe of Colombia and Hugo Chávez of Venezuela, before making any final decisions.

The potential fund will be "a new bi-national financial institution that is aimed, overall, at maintaining and growing the flow of investments in the midst of the current economic crisis that spreads across the world," Maduro told the press. "In the first semester of this year we hope to make decisions on economic accords aimed at complementary, integral commercial development," he said.

Minister Bermúdez thanked Venezuela for supporting its successful bid for the presidency of the Association of Caribbean States in January. Regarding Wednesday's meeting, he said, "There is definitely an enormous agenda that obligates us to advance side-by-side in common projects, even more so with the financial crisis."

Bermúdez asked Venezuela to accompany Colombia in the struggle to halt drug trafficking, which has been a major source of funding for both sides of Colombia's four-decade civil conflict between rebel guerrillas and the government.

"It is fundamental to emphasize that a definitive triumph in the fight against drug trafficking will be achieved with the un-conditional support of the entire international community," said Bermúdez.

Maduro said Venezuela is committed to combating drug trafficking through Venezuela, highlighting the sharp increase in drug interdictions and the eradication of drug laboratories from Venezuelan territory over the past three years. Maduro also invited the director of Venezuela's National Anti-Drug Office, Néstor Reverol, to participate in Wednesday's meetings.

In response to Venezuela's repeated warnings to Colombia to keep drug-related fumigations out of Venezuelan territory, Bermúdez promised not to fumigate within ten kilometers of the border. "There are no fumigations foreseen along the border with Venezuela, but we do plan to fumigate in the north of Santander in municipalities that lie as close as 25 kilometers from the border," he said.

Both ministers said they will consider the possibility of coordinating drug policy directly with one another.

The friendly tone of Wednesday's meeting contrasted sharply with the diplomatic clash earlier this month after Colombian Defense Minister Juan Manuel Santos said Colombia's bombardment of an encampment of the Revolutionary Armed Forces of Colombia (FARC) in Ecuadoran territory one year ago was a justifiable act of self-defense.

Chávez said Santos's declaration threatens to destabilize the region and violates a peace-keeping agreement signed by all South American heads of state shortly after last year's attacks.

President Chávez has been an enthusiastic advocate of regional integration initiatives as a tool to endure the effects of the global economic crisis. Colombia participates in one of these integration blocs, the Union of South American Nations (UNASUR), but not in others, such as the cooperation-based trade bloc called the Bolivarian Alternative for the Americas (ALBA), an alternative to U.S.-dominated free trade deals.

Despite periodic conflicts and heated exchanges, President Chávez and President Uribe have met regularly over the past five years to sign economic accords and craft large-scale infrastructure projects that are a part of South American Inter-Regional Infrastructure (IIRSA), which are financed in part by the Inter-American Development Bank and the World Bank.

Maduro highlighted this history of cooperation Wednesday. "This meeting is the continuation of the ongoing effort to contribute to the positive work agenda, an agenda of peace and integration between both governments," said Maduro.

March 20, 2009

The Federal Reserve is bankrupt for all intents and purposes. The same goes for the Bank of England ! This article will focus largely on the Fed, because the Fed is the “financial land-mine”. How long can someone who has stepped on a landmine, remain standing – hours, days? Eventually, when he is exhausted and his legs give way, the mine will just explode! The shadow banking system has not only stepped on the land-mine, it is carrying such a heavy load (trillions of toxic wastes) that sooner or later it will tilt, give way and trigger off the land-mine![1]

In a recent article, I referred to the remarks of British Prime Minister Gordon Brown and President Obama calling for the shadow banking system to be outlawed. Even if the call was genuine, it is too late. The land-mine has been triggered and the explosion cannot be averted under any circumstances. The only issue is the extent of the damage to the global economy and how long it will take for the world to recover from this fiasco – a financial madness that has no precedent. The great depression is “Mary Poppins” in comparison!

The idea of a central bank going bankrupt is not that outlandish. I am by no means the first author who has given this stark warning. What underlies this crisis (which I initially examined in an article in December 2006) is the potential collapse of the global banking system, specifically the Shadow Money-Lenders.

Nouriel Roubini, the New York University professor said [2]:“The process of socialising the private losses from this crisis has moved many of the liabilities of the private sector onto the books of the sovereign. At some point a sovereign bank may crack, in which case, the ability of the government to credibly commit to act as a backstop for the financial system – including deposit guarantees – could come unglued.”

Please read the underlined words again. “Sovereign bank” means central bank. When a central bank “cracks” i.e. becomes insolvent, “all hell breaks lose”, because as the professor correctly pointed out, “any government guarantees will ring hollow and will be useless”. If a central bank goes belly up, it is as good as the government going bankrupt. Period!

In another article, Roubini admitted that the pressure on “the financial land-mine” is totally unbearable. He wrote: “The US Financial system is effectively insolvent”. It follows that if the financial system is bankrupt, it is a matter of time before the “sovereign bank” goes belly up. This is a given!

He stated further that:“Thus, the U.S. financial system is de facto nationalized, as the Federal Reserve has become the lender of first and only resort rather than the lender of last resort, and the U.S. Treasury is the spender and guarantor of first and only resort. The only issue is whether banks and financial institutions should also be nationalized de jure.

“AIG which lost $62 billion in the fourth quarter and $99 billion in all of 2008 is already 80% government-owned. With such staggering losses, it should be formally 100% government-owned. And now the Fed and Treasury commitments of public resources to the bailout of the shareholders and creditors of AIG have gone from $80 billion to $162 billion.

“Given that common shareholders of AIG are already effectively wiped out (the stock has become a penny stock), the bailout of AIG is a bailout of the creditors of AIG that would now be insolvent without such a bailout. AIG sold over $500 billion of toxic credit default swap protection, and the counter-parties of this toxic insurance are major U.S. broker-dealers and banks.

“News and banks analysts' reports suggested that Goldman Sachs got about $25 billion of the government bailout of AIG and that Merrill Lynch was the second largest benefactor of the government largesse. These are educated guesses, as the government is hiding the counter-party benefactors of the AIG bailout. (Maybe Bloomberg should sue the Fed and Treasury again to have them disclose this information. )

“But some things are known: Goldman's Lloyd Blankfein was the only CEO of a Wall Street firm who was present at the New York Fed meeting when the AIG bailout was discussed. So let us not kid each other: The $162 billion bailout of AIG is a non-transparent, opaque and shady bailout of the AIG counter-parties: Goldman Sachs, Merrill Lynch and other domestic and foreign financial institutions.

“So for the Treasury to hide behind the “systemic risk” excuse to fork out another $30 billion to AIG is a polite way to say that without such a bailout (and another half-dozen government bailout programs such as TAF, TSLF, PDCF, TARP, TALF and a programme that allowed $170 billion of additional debt borrowing by banks and other broker-dealers, with a full government guarantee), Goldman Sachs and every other broker-dealer and major U.S. bank would already be fully insolvent today.

“And even with the $2 trillion of government support, most of these financial institutions are insolvent, as delinquency and charge-off rates are now rising at a rate - given the macro outlook - that means expected credit losses for U.S. financial firms will peak at $3.6 trillion. So, in simple words, the U.S. financial system is effectively insolvent.”

“Citibank, Bank of America, HSBC Bank USA, Wells Fargo Bank and J.P. Morgan Chase reported that their “current” net loss risks from derivatives — insurance-like bets tied to a loan or other underlying asset — surged to $587 billion as of Dec. 31. Buried in end-of-the-year regulatory reports that McClatchy has reviewed, the figures reflect a jump of 49 percent in just 90 days.

“The disclosures underscore the challenges that the banks face as they struggle to navigate through a deepening recession in which all types of loan defaults are soaring.

“The government has since committed $182 billion to rescue AIG and, indirectly, investors on the other end of the firm's swap contracts. AIG posted a fourth quarter 2008 loss last week of more than $61 billion, the worst quarterly performance in U.S. corporate history.“The five major banks, which account for more than 95 percent of U.S. banks' trading in this array of complex derivatives, declined to say how much of the AIG bailout money flowed to them to make good on these contracts.

“The banks' quarterly financial reports show that as of Dec. 31:— J.P. Morgan had potential current derivatives losses of $241.2 billion, outstripping its $144 billion in reserves, and future exposure of $299 billion.— Citibank had potential current losses of $140.3 billion, exceeding its $108 billion in reserves, and future losses of $161.2 billion.— Bank of America reported $80.4 billion in current exposure, below its $122.4 billion reserve, but $218 billion in total exposure.— HSBC Bank USA had current potential losses of $62 billion, more than triple its reserves, and potential total exposure of $95 billion.— San Francisco-based Wells Fargo, which agreed to take over Charlotte-based Wachovia in October, reported current potential losses totalling nearly $64 billion, below the banks' combined reserves of $104 billion, but total future risks of about $109 billion.

“Kopff, the bank shareholders' expert, said that several of the big banks' risks are so large that they are “dead men walking.”

Berkshire Hathaway Chairman, Warren Buffett is so livid by the sheer magnitude of the financial mess that he said:“These instruments [derivatives] have made it almost impossible for investors to understand and analyze our largest commercial banks and investment banks . . . When I read the pages of 'disclosure' in (annual reports) of companies that are entangled with these instruments, all I end up knowing is that I don't know what is going on in their portfolios. And then I reach for some aspirin.”

The above bad news refers to the losses and potential losses that the big banks have suffered and will suffer in the near future. But what is overlooked by many financial analysts is that these very same derivative products have caused another financial organ failure. And there is no way that the said organ can be resuscitated to its former state of health.

The Repo Market is gridlocked!

There has been an incestuous relationship between the traditional banking system and the shadow banking system and the link that joined the two together is the Repo Market [Repurchase Market]. This is in fact the weakest link in the entire financial system.

This is a very technical subject and I seek your indulgence and patience when reading the remaining part of this article. The gridlock of the repo market is the basis for my assertion that over and above the aforesaid dire financial facts, it is the major contributing factor to the bankruptcy of the Federal Reserve!

I want to use a simple analogy. This will make the issue easier to understand. Picture a one-inch diameter thick rope. Such a rope is made up of a few strands of narrower ropes, say 1/10th inch which are twined together to make the thick one-inch diameter rope. Picture again that all the outer strands have been burnt away, and what remains is the middle strand, still lifting the weight. But this strand cannot on its own lift such a weight, and sooner or later it will snap. When that happens, the weight will come crashing down! The middle strand is the repo market.

Alternatively, you can use the analogy that the repo market is the heart that pumps the blood (the cash flow). The financial system is the body and it has suffered a massive heart attack! What is the repo market? The repo market is the market whereby all financial institutions (regulated and unregulated) invariably go to obtain financing to meet reserve requirements, bridging finance, to lend or purchase securities, to hedge and or to invest on short-term basis.

It used to be that mainly US Treasuries (bear this in mind at all times) were used as security for Repo transactions, as it is considered as most secure i.e. as good as cash since it is backed by the credit of the US government! This requirement is no longer the case. More of this issue later.

The Nature of Repo Transactions

In repo transactions, securities are exchanged for cash with an agreement to repurchase the securities at a future date. The securities serve as collateral for what is effectively a cash loan. A distinguishing feature of repos is that they can be used either to obtain funds or to obtain securities. As repos are short-maturity collateralized instruments, repo markets have strong linkages with securities markets, derivative markets and other short term markets such as inter-bank and money markets. [3]

Like other financial markets, repo markets are subject to credit risks, operational risks and liquidity risks. However, what distinguishes the credit risks on repos from that associated with uncollateralized instruments is that repos credit exposures arise from volatility (or market risk) in the value of collateral. Bear this in mind at all times.

Repos allow institutions to use leverage to take larger positions in financial markets which could add to systemic risks. Bear this in mind at all times.

And because of the close linkages between repo markets and securities markets, any shocks will be transmitted quickly, resulting in a gridlock. Bear this in mind at all times.

Transactions covered by definition of repos are as follows:(A) Repurchase AgreementA repurchase agreement involves the sale of an asset under an agreement to repurchase the asset from the same counter-party. Interest is paid on the repurchase agreement by adjusting the sale and purchase price. A reverse repo is the purchase of an asset with an agreement to re-sell the same or a similar asset.

A hold-in-custody repurchase agreement is a trade whereby the repoer (the borrower of cash) continues to hold the collateralizing securities in custody for the lender of cash. The risks are obvious!

A deliver-out repurchase agreement is where securities are delivered to the cash lender for custody in exchange for cash.

A tri-party repurchase agreement is similar to a deliver-out repurchase agreement, except that the security is placed in the custody of a third-party entity. The third-party ensures that the security meets the cash lender's requirements and provides valuation and margining services. This is the primary form of repurchase agreement for securities dealers in the United States . Bank of New York and JP Morgan Chase are the two main custodians or clearing banks in the US and supervise the vast majority of the tri-party repos. Bear this in mind at all times.

(B) Sell/Buy-Back AgreementA sell buy-back is two distinct outright cash market trades, one for forward settlement. The forward price is set relative to the spot price to yield a market rate of return.

(C) Securities LendingThis is where the owner of the security lends them to another person in return for a fee. The borrower of the security is contractually obliged to redeliver a like quantity of the same securities, or return precisely the same securities.

Repos can be of any duration but are most commonly over-night loans. Repos longer than over-night are called Term Repos. There are also Open Repos which are transactions which can be terminated by both parties on a day's notice.

The largest players of repos and reverses are the dealers in government securities. There are about 20 primary dealers recognised by the Fed which are authorised to bid for new-issued treasury securities for resale in the market. The dealers are highly leveraged, 50 to 100 times their own capital. To finance the purchase of treasury securities, the dealers need to have repo monies in large amounts on a continuing basis. The institutions that supply such huge funds in the repo market are money funds, large corporations, state and local governments and foreign central banks.

The Repo Market and the Financial Crisis

As stated earlier when the repo market first started, US treasuries were the preferred security. But when financial engineering exploded and many financial products (i.e. CDOs) were rated AAA by rating agencies, these securities were also traded as described above in the repo market. This was when problems started.

According to Gary Gorton [4], the repo market before the crisis was estimated to be worth a whopping $12 trillion as compared to the total assets in the entire US banking system of $10 trillion.

The former CEO of Federal Reserve Bank of New York (NYFRB) and now the US Treasury Secretary, Tim Geithner observed in 2008:“The structure of the financial system changed fundamentally during the boom, with dramatic growth in the share of assets outside the traditional banking system. This non-bank financial system grew to be very large, particularly in money and funding markets.

“This parallel system financed some of these very assets on a very short term basis in the bilateral or tri-party repo markets. As the volume of activity in repo markets grew, the variety of assets financed in this manner expanded beyond the most highly liquid securities to include less liquid securities, as well. Nonetheless, these assets were assumed to be readily sellable at fair values, in part because assets with similar credit ratings had generally been tradable during past periods of financial stress. And the liquidity supporting them was assumed to be continuous and essentially frictionless, because it had been so for a long time.

“The scale of long term risky and relatively illiquid assets financed by very short-term liabilities made many of the vehicles and institutions in this parallel financial system vulnerable to a classic type run, but without the protection such as deposit insurance that the banking system has in place to reduce such risks.”

Economic historians will argue for another century as to the cause for the run on the repo market. The collapse of Bear Stearns is as good a starting point as any. When the market discovered that its securities were duds, pure junk, shock waves ripped through the system. Recall that I had mentioned earlier that Federal Bank of New York and JP Morgan Chase were the primary clearing banks for repos.

The Fed's rescue of Bear Stearns through JP Morgan was not so much to save the former but rather to shore up the “clearing system” of the repos for which JP Morgan Chase and the Bank of New York were the main pillars. One of the functions of a “clearing bank” for repos is to value and match securities tendered for cash borrowings. If Bear Stearns securities are now valued as junks, the integrity of JP Morgan and Federal Bank of New York as clearing banks in this market is as good as zero! And bearing in mind that the five major investment banks in the US rely heavily on the repo market for their funding, any gridlock in this part of the shadow banking system would tear wide open the entire banking system, including the traditional counter-part.

Hence, the FED intervention by the creation of the Primary Dealer Credit Facility (PDCF), which was in effect the backstop for all investment banking using tri-party repos! This was what Bernanke said:“We have been working with market participants to develop a contingency plan should there ever occur a loss of confidence in either of the two clearing banks that facilitate the settlement of tri-party repos.”

Louis Crandall, economist at Wrightson ICAP observed:“The vulnerability of the tri-party repo system has been a recurring theme among Federal Reserve and Treasury officials in recent weeks.”

The inherent weakness of tri-party repos is that the counter-party risks of billions worth of funding agreements are shouldered by essentially two players – Federal Bank of New York and JP Morgan Chase. Yet, way back then, they were held up as rock solid. It is almost hilarious to read the then advert of the Federal Bank of New York as to their expertise and service:“Sophisticated collateral selection: enforce diversification and credit quality; control adequacy, volatility & liquidity.“Cutting edge infrastructure: economies of scale facilitate extensive data warehousing, access to more asset classes and markets, auto-substitution, auto-allocation & optimisation technology, same day reporting.“Introduction to new counterparts: A Global Collateral Clearing House.”

Panic swept across the entire repo market. No securities were considered safe enough for repos except US treasuries. Fundings in the repo market grind to a halt. Market players withdrew funds and began hoarding treasuries. The rest who own structured products were slaughtered.

I would like to quote Gary Gorton again:“Imagine a firm that is levered 30:1, by borrowing in the repo market. If the haircut [5] doubles, or goes from zero to a positive amount, the required deleveraging is massive! Most investment banks were levered 30:1, equivalent to about a 3 per cent haircut. If the haircut rises to 6 per cent, at least half the assets will have to be sold.

“Another sign of trouble is a ‘repo fail'. A ‘repo fail' occurs when one side of the agreement fails to abide by the contract. [Fail to deliver the security under the repurchase agreement.]

“Dealer banks would not accept collateral because they rightly believed that if they had to seize the collateral should the counter-party fail, then there would be no market in which to sell it. This was due to the absence of buyers because of the deleveraging. This led to an absence of prices for these securities. If the value cannot be determined because there is no market – no liquidity or there is the concern that if the asset is seized by the lender, it will not be saleable at all, then the dealer will not engage in repo. Repo dealers report that there was uncertainty about whether to believe the ratings on these structured products, and in a very fast moving environment, the response was to pull back from accepting anything structured. If no one would accept structured products for repo, then these bonds could not be traded – and then no one would want to accept them in repo transactions.”

This change led to a sharp increase in the demand for government securities for repo transactions, which was compounded by significantly higher safe-haven demand for US Treasuries and the increased unwillingness to lend such securities in repo transactions. As the crisis unfolded, this combination resulted in US government collateral becoming extremely scarce. [6]

I will now turn to the issue of the FED's solvency. As has been observed, the Fed intervened aggressively to check the run on the repo market. Various measures were taken, but in my view the most dangerous was the widening of the collaterals which the Fed was willing to accept to secure funding of the players in the repo market. The Fed also intervened by lending a huge chunk of its US treasuries in exchange for junks to facilitate credit expansion. In the result, what happened was that the Fed's present balance sheet of approximately $2 trillion is made up mostly of junk securities.

The Fed is no different from banks in that confidence in the quality of its assets is critical and that if and when the market recovers, there is in fact a market for the junk assets that it took on to unravel the gridlock in the financial markets.

By way of analogy, if your high street bank's balance sheet is made up of junk, what would you do? There are just not enough assets to meet its liabilities. But of course, one can argue that the Fed is not your high street bank. It is the central bank of the mighty USA . It will always be able to “print money” or “digitalise” money and keep the markets going.

But beware that the Federal Reserve Note is mere paper, fiat money which cannot be redeemed for anything tangible such as gold. And although it is stated boldly in the notes issued - “In God we trust” - you and I are not actually placing our trust in God when accepting the Federal Reserve Notes as “money”.

When Joe Six-Packs realises that the Federal Reserve Note is not even secured by US treasuries nor the FED has real tangible assets, but its balance sheet is littered with junks and toxic waste, there will be a run on the Fed i.e. when Americans and foreigners no longer have faith in the Federal Reserve Notes as “money”.

If confidence could vaporise in a second and cause a stampede in what was once considered solid security, the triple A rated bonds in the repo and money markets, the same confidence that is now reposed in the Federal Reserve Notes can likewise disappear into the memory hole.

All these years, the con was maintained by the Fed that it was solid because it has on its balance sheet over $800 billion of US treasuries i.e. its notes “were so-called backed by these treasuries”. It could sell its treasuries in the repo market for cash and thereby control the money flows in the economy and vice versa.

In their subconscious mind, Americans and stupid foreign central banks and their executives (brain-washed by the Chicago School of Economics) somehow believe in the infallibility of the Fed. Now it has been exposed that the Fed's “assets” comprise of junk bonds and toxic wastes. The Emperor has no clothes! Paul Volcker, former Chairman of the Federal Reserve may have given the ultimate epitaph: “The bright new financial system – for all its talented participants, for all its rich rewards – has failed the test of the market place.”

And it is any wonder that Professor Nouriel Roubini declared:“The process of socialising the private losses from this crisis has already moved many liabilities of the private sector onto the books of the sovereign. At some point a sovereign bank may crack, in which case the ability of the government to credibly commit to act as a backstop for the financial system – including deposit guarantees – could come unglued.”

In my opinion, the Fed has already become “unglued”. Whatever guarantees given to secure the indebtedness of CitiGroup and others to prevent a run on these banks are useless. It is bankrupt!

End Notes[1] There are two banking systems in existence today. The Traditional Banking System – i.e. High Street banks and the Shadow Banking System. But the players in both the systems overlap because, the major banks of the traditional system helped spawn the shadow banking system. In fact they are the key players in the use of the so-called “new financial products, the CDOs, CLOs, MBS” etc and which have now turned toxic – worthless, junk to be exact.[2] See my website archives: Roubini Warns of Sovereign Bank Failure – February 20, 2009 www.theage.com. au[3] See: Implications of repo markets for central banks, CGFS Publications No 10, March 1999.[4] Gary Gorton, Information, Liquidity, and the (Ongoing) Panic of 2007 prepared for the Jackson Hole Conference 2008[5] “haircut” here refers to the rate payable for the cash loan or the margin.[6] Peter Hordahl and Martin R King, Developments in repo markets during the financial turmoil BIS Quarterly Review, December 2008

Fresh American sanctions against Iran’s state-owned Melli Bank are aimed primarily at wrecking Tehran’s efforts to drum up foreign investment.

A year ago Intelligence Online reported that the U.S. Treasury Department was thinking opening hostilities against Melli Investment Holding International (MEHR), the fund management affiliate of Melli, the biggest public bank in Iran. That has now happened. Washington has just announced sanctions against 11 companies with links to Melli (see graph below).Backed by the European Commission and the U.N. Security Council, Washington had already fired broadsides at all of Melli’s branches overseas (London, Paris, Hong Kong and Moscow, etc.). The Treasury Department’s new offensive primarily targets the web of firms set up by the bank in the United Arab Emirates and the Cayman Islands tax haven. The latter offshore branch is headed by Britain’s Stephen Austen assisted by three Iranians: Faziollah Moazzami, boss of BMIIC, the investment arm of Melli; Mohammed Mehrzad, former chief of BMIIC and now a director of MEHR; and Esfandiar Rashidzadeh, who headed the first MBIIC affiliate that opened in Dubai in 2004, BMIIC International General Trading. Austen is no stranger to Iran. In 1983, after the Islamic revolution, he re-opened a branch of Lloyds Bank in Tehran. More recently, after stints with France’s Calyon and Goldman Sachs, he co-founded and headed the Future Bank, a joint venture between the Bahrain-based bank Ahli United Bank, and the state-owned Iranian establishments Saderat and Melli. Future Bank, also hit by Treasury Department sanctions in October 2007, still operates.

The second session of the Second Plenary of the 11th National People's Congress (NPC) of China , which is its Parliament, was held at Beijing from March 3 to 12,2009. There were detailed discussions in the NPC on the state of the nation as reported by Prime Minister Wen Jiabo and other Ministers. President Hu Jintao, Wen and other important members of the Government and the Chinese Communist Party also availed of the presence in Bejing for the NPC session of Government and party representatives from different provinces to discuss with the representatives from each province in the margins of the NPC session the state of the economy in each province. They explained to the representatives from the provinces the measures already taken by the Government to deal with the decrease in exports, the closing down of many factories and the consequent increase in unemployment and gave guidance as to how the provinces should deal with the situation.

2. A study of the proceedings of the NPC session and of the discussions in the various interactions held by Hu, Wen and others in the margins of the NPC session indicate that the just-concluded session was largely taken up by issues relating to the economy and internal security. This was indicative of the concern of the Chinese leadership over the likely impact of the economic decline on the internal security situation due to the increase in unemployment and fall in the prices of agricultural accommodities due to a decrease in the purchasing power of the people.

3. On a rough estimate, a little more than 50 per cent of the discussions was devoted to the state of the economy and about 20 per cent to the internal security situation, including the situation in Tibet. Only the remaining 30 per cent of the discussions was devoted to other issues. The work of the Ministry of Public Security, which is responsible for internal security, received much greater attention than the work of other Ministries.

4. It must be said to the credit of the Chinese leaders that they were quite transparent during the discussions in the NPC session as well as in the margins of the NPC session. They frankly admitted the difficulties faced by the economy,without any attempt to cover them up. At the same time, it was pointed out that the difficulties arose due to the US mismanagement of its financial sector, which has affected and continues to affect all global economies for no fault of their leaders. It was explained that the difficuilties faced by China were not due to any mismanagement by its policy-makers. It was also highlighted that the Chinese banks and other financial institutions are in a good state of health and that China's problems are radiating from the manufacturing sector, which had become over-dependent on the external market---particularly the US market.

5. While there is an understanding of the need for developing the domestioc market, which was neglected till now, the Chinese policy-makers do not seem to realise that this is difficult in a time of declining purchasing power of the Chinese families and the consequent decline in demand. The decline in the purchasing power of the Chinese families is due to about 20 million Chinese, who were gainfully employed till November last, losing their jobs and another 7.1 million new entrants to the job market finding it difficult to get a job. The Chinese policy-makers are hoping to create nine million new jobs during 2009 under their stimulus package (US $ 585 billion) announced in November last. Even if they succeed in doing so, there will still be about 18 million unemployed left.

6. To transform the vast rural China into a consumer market, producers of automobiles, domestic appliances etc are being encouraged to take their accumulated stocks to the countryside and sell them to the rural people. But when people have less and less money to buy even their essential requirements, there are very few takers for such goods in the countryside.

7. The Chinese are juggling with two mutually contradictory objectives. Firstly, how to restructure their manufacturing sector in order to enable it to look more inwards than in the past? Secondly, how to retain China's present share of the global trade, which has enabled it over the years to earn the money for its military expanasion and modernisaion? For the retention of China's newly-acquired status as a global power, it is important for it not to lose its share of the global trade. They have not come out with a satisfactory policy, which could meet both these objectives.

8. There are two possible sources of social tensions which could have an impact on the internal security situation. The likelihood of tensions arising from the serious unemployment situation has already been noted by experts in China as well as outside. The other likelihood of tensions in the rural areas due to the income of the rural families being hit by the fall in commodity prices has not received the required attention. There has been a lot of focus on the likelihood of urban tensions, but not enough focus on likely rural tensions. A study of Chinese history would show that successful mass uprisings started from the rural areas.

9. The other question left undiscussed is how the decline in the flow of inputs such as fertilisers to farming would affect China's agricultural production in the short and medium terms. Job security has already become a grave issue. Can food security emerge as an equally worrisome issue?

10. The Chinese are gratified by the US request as conveyed by Mrs.Hillary Clinton, the US Secretary of State, during her visit to Beijing from February 20 to 22,2009 that they should continue to invest their foreign exchange reserves in US Treasury Bonds. At the same time, they have made it clear that their decision in this matter will be decided by their national requirements. If the stimulus package announced last November does not halt their economic decline, they may have to initiate another stimulus package. To fund it, they may have to dip into their foreign exchange reserves.This is not the time to divert more reserves to the US bond market. They have been making this point repeatedly even in the past weeks before Hillary Clinton's visit.

11. Briefing the media on the NPC session on March 13,2009, Prime Minister Wen indicated another reason for the Chinese caution on the issue of investing more in the US bonds---- namely, their misgivings about the continued stability of the US dollar. Wen said: " "We lent such huge fund to the United States and of course we're concerned about the security of our assets and, to speak truthfully, I am a little bit worried. On the foreign reserves issue, the first consideration is the national interest. But we also have to consider the stability of the overall international financial system, as the two factors are interlinked. China is indeed the largest creditor of the United States, which is the world's biggest economy. We are extremely interested in developments in the U.S. economy. We are watching the effect of the measures taken by the U.S. Government to counter the international financial crisis."

12. US policy-makers have hastened to reassure Beijing about the stability of the US dollar. In a speech at the Brookings Institution in Washington DC on March 13,2009, immediately after Wen's press conference in Beijing, Larence Summers, Obama's top economic advisor in his capacity as the Director of the National Economic Council (NEC), said: "The U.S. would be sound stewards of the money we invest. This is a commitment that the President has made very clear --we need to be sound stewards of the money we invest."

13. Are the Chinese leaders satisfied by this assurance? One has to wait and see. They would prefer to watch for the impact of Obama's policies on the US banking sector before taking any decision on an increase in investments in the US bonds. In November last, the total value of the Chinese holdings of the US Bonds was estimated at US $ 681.9 billion.

14. While studying the remarks of the Chinese leaders during the NPC session, one could detect an under-current of concern that the conservative anti-reform elements in the party and the Government might try to exploit the current difficulties by blaming them not on the US mismanagement of its banking sector, but on the Chinese policy of economic reforms and globalisation itself. It was repeatedly stressed that there would be no going back on the reforms and that China should continue to adhere to its policy of opening up its economy. (20-3-09)

(The writer is Additional Secretary(retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. He is also associated with the Chennai Centre For China Studies, E-mail: seventyone2@gmail.com )

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